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Dividend Imputation and Shareholder Wealth: The Case of New Zealand

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  • Andrew Prevost
  • Ramesh P. Rao
  • John D. Wagster

Abstract

On April 1, 1988, New Zealand stopped the double taxation of dividends by implementing a full dividend imputation program. Because many believed that the tax advantage of debt had led to more highly leveraged firms subject to greater financial risk than was socially optimal, it was hoped the removal of incentives to finance with debt would result in a more efficient allocation of capital. The empirical results suggest that the shareholder wealth gain from dividend imputation was more than offset in firms with large debt levels. Moreover, an examination of debt ratios indicates debt levels declined in the post–imputation period.

Suggested Citation

  • Andrew Prevost & Ramesh P. Rao & John D. Wagster, 2002. "Dividend Imputation and Shareholder Wealth: The Case of New Zealand," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(7‐8), pages 1079-1104.
    • Handle: RePEc:bla:jbfnac:v:29:y:2002:i:7-8:p:1079-1104
    DOI: 10.1111/1468-5957.00462
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    Cited by:

    1. Chia-Wen Chang & Ming-Chin Chen & Vincent Y.S. Chen, 2017. "Are Corporate Tax Reductions Real Benefits under Imputation Systems?," European Accounting Review, Taylor & Francis Journals, vol. 26(2), pages 215-237, April.

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